Vagit Alekperov - Schmidt Controversy

Schmidt Controversy

Lukoil thus arose in the dying days of the Soviet Union in 1991, set up by a small group of Soviet oil bureaucrats led by Alekperov. Another member of the group was his close friend Vitaly Schmidt, a petroleum engineer. The group forged strong bonds working in a remote drilling camp in the Siberian swamp town of Kogalym, meaning "the lake where a man died."

Oil tycoon Schmidt was himself a multi-millionaire with luxury residences in four countries. Much of his fortune came from a group of small offshore energy companies he oversaw on behalf of himself and the few fellow executives of Lukoil.

His sudden death under mysterious circumstances in Moscow in August 1997 set off a struggle for control of his assets, hidden in tax havens from the Isle of Man to Panama. It led his son Vadim Schmidt, nineteen when his father died, to accuse Lukoil executives, including Alekperov, of raiding his father's estate, allegations they deny, according to front page article in the Wall Street Journal on December 6, 2006.

Vadim made the claim in an Isle of Man court and in the high U.K. appellate court known as the Privy Council. In response to the allegations that Lukoil executives sometimes took control of company profits Vitally Schmidt had secreted in the Isle of Man, Alekperov said, "Unfortunately, the son didn't take after his father. He's looking for his father's supposed money."

Schmidt had been head of drilling in Kogalym when Alekperov moved to the oil ministry in Moscow. There, Alekperov helped establish Lukoil as a state company with control of Kogalym and extensive natural-gas assets. A minority slice of Lukoil's shares started trading publicly in Russia in 1993, after which the state's interest gradually shrank to zero.